With a busy week ahead, mortgages and treasuries are rallying while equities are lower this Monday morning on renewed concern over Chinese equity markets and less than ideal U.S. economic data. Overnight, stocks in China plunged, with the Shanghai index falling as much as 8.5%, as worry grows that the Chinese government’s recent efforts to stabilize the market and prop up Chinese markets will not be successful (or even possible). This has created a ripple into European and U.S. markets, with European stocks down 1.5% and U.S. stocks are down for the fifth consecutive day. Naturally, a flight-to-quality bid has ensued on this, and the 10-year treasury is currently at its lowest level in three weeks, hovering at around 2.23%.

Earlier today, we had disappointing results on durable goods orders, where the headline number beat but prior month numbers at the headline level and excluding aircraft were revised significantly lower. Orders for June came in at +3.4% vs. a +3.2% expectations, but May was revised down to -2.1% from -1.8%. Excluding transportation, durables were +0.8% vs. +0.5% survey, but May was revised from +0.5% down to -0.1%.

Capital goods numbers weren’t much better, with orders at +0.9% vs. +0.5%, but revised prior month from +0.4% to -0.4%, and capital goods shipped widely missed at -0.1% vs. +0.6% expectation and May was down to -0.3% vs. an initial +0.3% print. The most notable of these misses is the capital goods orders print, which strongly forecasts business investment in equipment, a critical indicator in business sentiment. Combining all of the revisions from May as a whole, net orders for June were roughly 0.4% lower than expected.

Economic Data for the Week Ahead

The week ahead brings a full plate of other economic data and government auctions, with the highlight of the calendar being the release of the FOMC rate decision after the conclusion of this month’s two-day meeting. The Fed will release their decision Wednesday at 2 p.m. EST and since there will not be a press conference from Fed Chair Janet Yellen following the release, the wording from the release alone will be heavily scrutinized.

While a July rate increase is still a possibility, it is unlikely to happen, with the majority of sentiment pointing to September. Analysts will look to this announcement to see what changes are made to set the table for that September increase, though the Fed is likely to be extremely cautious in their wording in hopes of preventing a market panic, especially considering the less than optimal data seen over the last month (excluding labor markets, which have remained relatively solid).

Second quarter GDP is forecast to come in at +2.5% after we had negative GDP of -0.2% in Q1. The U.S. Treasury will sell $26 billion in two-year notes Tuesday, $35 billion in five-year notes Wednesday, and $29 billion in seven-year notes Thursday.

Here is the full economic calendar for this week, courtesy of the FNMA trading desk: